Exaggerated risk: Prospect theory and probability weighting in risky choice

Hdl Handle:
http://hdl.handle.net/10149/95153
Title:
Exaggerated risk: Prospect theory and probability weighting in risky choice
Authors:
Kusev, P. (Petko); van Schaik, P. (Paul) ( 0000-0001-5322-6554 ) ; Ayton, P. (Peter); Dent, J. (John); Chater, N. (Nick)
Affiliation:
Teesside University. Department of Psychology.
Citation:
Kusev, P. et al. (2009) 'Exaggerated risk: Prospect theory and probability weighting in risky choice', Journal of Experimental Psychology Learning Memory and Cognition, 35 (6), pp.1487-1505.
Publisher:
American Psychological Association
Journal:
Journal of Experimental Psychology Learning Memory and Cognition
Issue Date:
Nov-2009
URI:
http://hdl.handle.net/10149/95153
DOI:
10.1037/a0017039
Abstract:
In 5 experiments, we studied precautionary decisions in which participants decided whether or not to buy insurance with specified cost against an undesirable event with specified probability and cost. We compared the risks taken for precautionary decisions with those taken for equivalent monetary gambles. Fitting these data to Tversky and Kahneman's (1992) prospect theory, we found that the weighting function required to model precautionary decisions differed from that required for monetary gambles. This result indicates a failure of the descriptive invariance axiom of expected utility theory. For precautionary decisions, people overweighted small, medium-sized, and moderately large probabilities-they exaggerated risks. This effect is not anticipated by prospect theory or experience-based decision research (Hertwig, Barron, Weber, & Erev, 2004). We found evidence that exaggerated risk is caused by the accessibility of events in memory: The weighting function varies as a function of the accessibility of events. This suggests that people's experiences of events leak into decisions even when risk information is explicitly provided. Our findings highlight a need to investigate how variation in decision content produces variation in preferences for risk.
Type:
Article
Language:
en
Keywords:
risk; prospect theory; probability weighting; precautionary decisions; insurance; accessibility; frequency
ISSN:
0278-7393; 1939-1285
Rights:
Author can archive post-print (ie final draft post-refereeing). For full details see http://www.sherpa.ac.uk/romeo/ [Accessed 29/03/2010]
Citation Count:
0 [Scopus, 29/03/2010]

Full metadata record

DC FieldValue Language
dc.contributor.authorKusev, P. (Petko)en
dc.contributor.authorvan Schaik, P. (Paul)en
dc.contributor.authorAyton, P. (Peter)en
dc.contributor.authorDent, J. (John)en
dc.contributor.authorChater, N. (Nick)en
dc.date.accessioned2010-03-29T10:28:39Zen
dc.date.available2010-03-29T10:28:39Zen
dc.date.issued2009-11en
dc.identifier.citationJournal of Experimental Psychology Learning Memory and Cognition; 35 (6): 1487-1505en
dc.identifier.issn0278-7393en
dc.identifier.issn1939-1285en
dc.identifier.doi10.1037/a0017039en
dc.identifier.urihttp://hdl.handle.net/10149/95153en
dc.description.abstractIn 5 experiments, we studied precautionary decisions in which participants decided whether or not to buy insurance with specified cost against an undesirable event with specified probability and cost. We compared the risks taken for precautionary decisions with those taken for equivalent monetary gambles. Fitting these data to Tversky and Kahneman's (1992) prospect theory, we found that the weighting function required to model precautionary decisions differed from that required for monetary gambles. This result indicates a failure of the descriptive invariance axiom of expected utility theory. For precautionary decisions, people overweighted small, medium-sized, and moderately large probabilities-they exaggerated risks. This effect is not anticipated by prospect theory or experience-based decision research (Hertwig, Barron, Weber, & Erev, 2004). We found evidence that exaggerated risk is caused by the accessibility of events in memory: The weighting function varies as a function of the accessibility of events. This suggests that people's experiences of events leak into decisions even when risk information is explicitly provided. Our findings highlight a need to investigate how variation in decision content produces variation in preferences for risk.en
dc.language.isoenen
dc.publisherAmerican Psychological Associationen
dc.rightsAuthor can archive post-print (ie final draft post-refereeing). For full details see http://www.sherpa.ac.uk/romeo/ [Accessed 29/03/2010]en
dc.subjectrisken
dc.subjectprospect theoryen
dc.subjectprobability weightingen
dc.subjectprecautionary decisionsen
dc.subjectinsuranceen
dc.subjectaccessibilityen
dc.subjectfrequencyen
dc.titleExaggerated risk: Prospect theory and probability weighting in risky choiceen
dc.typeArticleen
dc.contributor.departmentTeesside University. Department of Psychology.en
dc.identifier.journalJournal of Experimental Psychology Learning Memory and Cognitionen
ref.citationcount0 [Scopus, 29/03/2010]en
or.citation.harvardKusev, P. et al. (2009) 'Exaggerated risk: Prospect theory and probability weighting in risky choice', Journal of Experimental Psychology Learning Memory and Cognition, 35 (6), pp.1487-1505.en
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